MBA under pressure: The changing context of advanced business programmes

15 May 2015

The Master of Business Administration (MBA) degree has long been the gold standard for those aspiring to the most prestigious corner offices of leading corporations and financial institutions. But the credential – and those schools that offer it – is under pressure from a host of related developments both on the supply and demand side of education.

Perhaps the overarching threat to the traditional MBA programme is increasing competition amid a rapidly changing marketplace. The number of graduate business programmes has dramatically increased in recent years, even as domestic demand in some developed economies has stalled or even fallen off.

There are many more business schools today than was the case a decade ago, and the landscape is increasingly global. The Association to Advance Collegiate Schools of Business (AACSB) estimates there were 7,622 educational institutions offering business degrees in 2005. By 2014, the number of business-degree-granting schools had more than doubled to 15,731. Those schools offer a variety of graduate degrees, certificates, and executive training programmes.

Taken together, India, the US, the Philippines, China, and Mexico are home to 56% of the world’s business schools.

Business remains one of the most popular fields of study in many markets. In the US, for example, business is the leading choice for undergraduate studies and accounts for nearly 21% of all bachelor degrees awarded in America. More than a quarter of all masters degrees in the US are granted in business studies. Needless to say, business, at both the undergraduate and graduate levels, is reliably a top programme of choice for international students as well.

Roughly 87,000 Americans sat the Graduate Management Admission Test (GMAT) in 2014, a drop of nearly a third from the 127,000 who challenged the test in 2010. Canada saw a similar drop (23%) over the same period. However, the pool of GMAT test-takers continued to expand in Asia, particularly in China where 57,783 wrote the test during 2014 (an increase of 91% over 2010).

Against this backdrop, there is also the question of the financial return arising from advanced business studies. Graduate business programmes, particularly those at top schools, require a significant investment which students have traditionally aimed to recoup via improved earning potential after graduation. Yet there are fewer and fewer companies able to offer the kind of compensation that has attracted graduates of top schools in the past. Business Insider puts it this way:

“The only people who can afford graduates are places like McKinsey, Goldman Sachs, hedge funds, and private equity. So in ‘classic disruption style,’ top MBA programmes have overshot the salaries that the majority of companies can bear.”

Moreover, there is a shrinking pool of companies and financial institutions requiring the credential as the global economy has diversified and opened up a range of options for entrepreneurial students. More and more, up-to-the-minute skills – ones frequently refreshed or expanded to meet new demands – are the ones many employers are looking for. Companies are also increasingly valuing job candidates who have demonstrated a global orientation to their studies and work experience.

MOOCs gain more traction

To meet these requirements, students are looking beyond the MBA (and other traditional degrees), not the least because alternatives are often drastically less expensive. There are an increasing number of advanced business courses delivered online via MOOCs or other low-cost models. These allow students to piece together an array of courses (often associated with prestigious universities) for a fraction of the cost of a traditional master’s programme. For now, the mix of courses students are assembling is arming them with knowledge and something impressive to present employers. Eventually, it is likely their coursework will be recognised more formally.

The credibility of assembled MBAs and/or business courses delivered online by top schools via MOOCs appears to be on the rise.

In 2014, the media was all over the case of Laurie Pickard, who stitched together her own MBA programme out of MOOCs for less than US$1,000 and who wrote about it via her No-Pay MBA blog. Though Ms Pickard has by now completely exceeded the course requirements to gain an MBA, she continues to take more MOOC courses. She told Fortune Magazine: “I have to keep my finger on the pulse and keep my skills fresh.”

Less than US$1,000 for an MBA, or its equivalent in the eyes of employers, is a compelling offer, especially for students who may have limited funds – but unlimited Internet access – as is the case for many students in countries across the world.

Later this year, the first digital MBA from the elite College of Business at the University of Illinois will be accepting applications from anyone. Leading MOOC provider Coursera will host the “iMBA,” which will cost US$20,000 – much less than the cost of a traditional MBA from a top-ranked business school.

The iMBA’s price tag is interesting because, while much less expensive than a traditional MBA, it is still significant. This is part of a growing trend among MOOCs to monetise some of their business courses – a testament to their staying power, evolution, and the real competition they present to traditional business schools.

Online MBAs in general are on the rise; writing on the BusinessBecause website, Seb Murray notes:

“Over five years the number of schools offering online MBA programmes has ballooned by around 25%, according to AACSB International, the accreditation body.”

Quacquarelli Symonds (QS), meanwhile, reports that 27% of prospective MBA students are now looking for online programmes, up from only 4.4% in 2008.

Corporate education

MOOCs are not the only threat to traditional MBA schools. Clay Christensen, Harvard professor and pioneer of the idea of disruptive innovation changing the model of higher education, considers a major game-changer to be the trend of companies creating their own in-house training courses. He considers that even Harvard will have to adapt to meet the challenge of “corporate education”:

“What’s disrupting us is that operating companies are pulling in the training of management inside. They’re creating their own corporate universities, like Intel University, GE at Crotonville. The best corporate university that I’ve visited is Perdue University … This is not in West Lafayette, Indiana, but it’s in Salisbury, Maryland. Perdue Farms, the chicken company, has its own university. They teach themselves while they work, and it’s growing like crazy.”

Margaret Andrews, top education consultant and instructor at such schools as Hult International Business School and Harvard, wrote recently about other examples of corporate universities whose courses are specifically geared to career-oriented students. She cited (among others):

Leading strategy firm McKinsey’s McKinsey Academy, a platform using McKinsey consultants as teachers and offering courses such as Business Strategy, Mastering Challenging Conversations, and McKinsey’s Approach to Problem Solving.

Skillshare, “a learning community for creators.” Students pay only US$10 a month for as many online courses as they wish to take in subjects including email marketing, entrepreneurship, and storytelling. Skillshare now has over 750,000 students, and is licensing out its courses to entire companies who want to offer them to their employees.

How to compete?

It is fair to say that few if any corporate training programmes can still match the prestige and profile of a highly rated graduate business school. And, while demand is clearly growing for online programmes, the bulk of the market still consists of the more traditional face-to-face delivery mode.

But with these disruptive competitive threats increasingly a factor for traditional graduate programmes, and with the number of business schools proliferating around the world, how are established business schools competing today?

Some are simply scaling back operations – that is, they are responding to a smaller, domestic applicant pool by reducing the number of students accepted each year. Others are looking abroad and stepping up efforts to recruit students from markets, such as China and India, where demand for graduate business programmes continues to grow.

Other strategies currently in play include:

Reducing the length of study – While the two-year MBA is still seen as the gold standard in many quarters, business schools now offer an increasing field of shorter programmes as well with a number of new MBA options introduced in recent years that can be completed with 12 to 16 months of study.

Going global – As business has become more globalised in recent decades, so has business education. And MBA programmes increasingly feature exchange or field school opportunities to help students build international experience and professional networks.

Think different – Certainly there are more specialised programmes available today, but observers point out that the expanded field of graduate business programmes available around the globe today have often only been modestly differentiated from one another. We can expect to see more specialisation going forward as schools continue to pursue a competitive advantage via more highly differentiated niche programmes. In one notable example, Canada’s Athabasca University recently announced an Executive MBA for the Business of Hockey, an online programme for current or aspiring hockey industry executives.

Whether a student aims to run a hockey team one day, manage a supply chain, or invent a new technology, there is increasingly going to be a more targeted graduate business programme for him or her. Through such new specialisations, not to mention new modes of delivery, programme models, and providers, it seems likely that the landscape for advanced business studies will look very different again a decade from now.